Amazon: And Now for Something Completely Different

Amazon is widely expected to reveal a new set-top video streaming device on Wednesday. The company sent out teaser invites to journalists that include
a photo of a couch with popcorn and the words, "Please join us for an
update on our video business."

Vague? Definitely. But rumors that Amazon has been working on a
streaming device have persisted for months, and The Wall Street
Journal last week reported that it also was considering
a free, advertising-supported
video streaming service.

Variety, in the meantime, reported that an Amazon spokesperson
denied plans to offer a free streaming-media service.

While no Amazon employee has gone on record to confirm a
set-top box device, several reputable publications have -- over the
last several months -- cited unnamed people familiar with Amazon's
plans. Hardly a smoking gun, but considering that Amazon saw fit to
refute the free-streaming service rumor -- but not the device rumor --
it's safe to say Amazon is going to deliver a streaming device.

Inside Amazon's New Set-Top Video Box

Amazon likely will introduce either a streaming stick like the HDMI
Google Chromecast or a set-top box like the Apple Apple TV. Or,
the company might produce both options -- like Roku's new Streaming
Stick or more traditional Roku box.

Like the Kindle Fire, Amazon's operating system will be Android-based.
It will provide streaming access to Amazon's video streaming library
of movies and TV shows, which currently has two segments. The first is
a "free" library of mostly B or C movies paired with thousands of TV
shows available for on-demand access to Amazon Prime customers, who
pay US$99 a year for augmented fast shipping of retail
products, with the video access bonus.

In function, Amazon's Prime
video service is similar to Netflix's video streaming service. And the
second part of Amazon's video library? The company also lets customers
rent or buy movies and TV shows on-demand, and this for-payment
library includes Hollywood blockbusters and current-season TV shows.

More of the Same or Something Different?

The real question about this rumor is how might an Amazon-based video
hardware device change anything?

Right now, Apple iOS users can stream Amazon Prime content via the
Amazon Instant Video app, which even lets them throw the content to
their Apple TV-connected HDTV via Apple's AirPlay feature. Xbox owners
can stream Amazon Prime content to their living room HDTVs, too, with
the Xbox-based app. And Roku? Roku owners can use an Amazon Instant
Video app too.

If Apple has sold 13 million or so Apple TVs at $99 a pop, and if Roku
has sold 8 million or so boxes and sticks at $50 to $99 -- and with
some unreported number of Google Chromecast sticks sold at $35 --
what's the big deal if Amazon comes to the living room party?

Answer: ecosystem extension.

With its own hardware, Amazon won't have to rely on other companies to
distribute its content. In addition, Amazon will be able to ensure
that its content gets prime real estate on its device
instead of fighting for attention with other apps, channels and
services on every other device.

In fact, Apple doesn't even let Amazon
have its Amazon Instant Video app directly on the Apple TV device (or
Amazon doesn't want it there; hard to pinpoint why the app isn't
native on the Apple TV since both Amazon and Apple are mum on the
subject).

Right now, Amazon Prime is just another video streaming
service. After this week's announcement, Amazon will be able to introduce a
full chain of interconnected products and build it's ecosystem of
content. From a consumer-focused position, this means that consumers
can invest in a Kindle Fire tablet and have a content consumption
experience that's replicated in their living room.

With Amazon's huge
customer base, a set-top box will help ensure that customers keep
Amazon top-of-mind -- not only for video content, but also for its
Prime service, which also makes buying retail products online with
super-fast shipping insanely easy. If the Amazon brand is always front
and center in the living room, it stands to reason that shopping for
products and books also might become more Amazon-focused for
consumers.

All of this helps Amazon pump up customer activity.

Behind the scenes, if Amazon can expand its customer base and usage of
its video services, it simply will gain power in the
entertainment world. To reach these customers, Amazon will be in a
better position to negotiate for streaming broadcast rights, as well
as lay the foundation to build content delivery partnerships with
Hollywood and television studios. Plus, in a new world where Net
neutrality is suddenly just a pipe dream, Amazon may begin to be able
to fight for -- if not pay for -- preferential streaming quality to its
own hardware. In fact, according to one recent report, Apple currently is
looking
for special treatment on Comcast's cable internet network. If
there's a new content war brewing, Amazon is going to want hardware to
fight in it.

Even if Amazon doesn't angle for special Internet treatment, the
company already is shaking up the content delivery space by activity
investing in the creation of new television shows and movies. Amazon
recently released
10 new
pilots for possible TV shows to its Amazon Prime customers -- and
even solicited feedback from fans to help decide which shows to
green light for full seasons. Apple isn't doing this.
Google isn't doing this. Roku isn't doing this. Amazon is.

Remember the wildly successful Stephen King breakout hit, Under
the Dome? Amazon negotiated
a
new sort of streaming deal that helped goose CBS into producing
the show, which has led to a second season as well as a brand
new TV series with CBS, Extant.

"Our partnership with Amazon for Under the Dome helped build a
creative, financial and marketing model for event television in the
summer," noted Scott Koondel, chief corporate licensing officer for
CBS Corporation,
earlier this year. "We look forward to using the same model for Extant, a series whose creative auspices, on-screen
talent and intriguing concept [are] already generating great excitement."

Any way you slice and dice Amazon's video efforts, it's all
nontraditional with few competitors lining up head-to-head -- and a hardware device will only make Amazon stronger.